- The Japanese Yen attracts some flows amid fears of a possible government intervention.
- The BoJ rate-hike uncertainty and the risk-on mood could cap gains for the safe-haven JPY.
- The emergence of some USD dip-buying could further offers some support to USD/JPY.
The Japanese Yen (JPY) reverses a modest Asian session dip and looks to build on the overnight recovery against its American counterpart, from the lowest level since July 30. The post-US election slump in the JPY prompts some verbal intervention from Japanese authorities. This, along with a softer tone surrounding the US Treasury bond yields, turn out to be key factors that acts as a tailwind for the lower-yielding JPY.
Meanwhile, a decline in Japan’s real wage and household spending for the second straight month in September dampens the inflation outlook, which could delay the Bank of Japan’s (BoJ) plans for additional rate hikes. This, along with Japan’s political landscape and the risk-on mood, should cap the safe-haven JPY. Apart from this, the emergence of some US Dollar (USD) dip-buying should offer support to the USD/JPY pair.
Japanese Yen looks to build on overnight recovery from multi-month low amid intervention fears
- Government data released this Friday showed that Japan’s household spending fell for the second successive month, by 1.3% in September and 1.1% from the year earlier.
- This comes on top of a fall in Japan’s inflation-adjusted wages for the second straight month in September and could hinder the Bank of Japan’s plans to hike rates further.
- Donald Trump’s victory in the US presidential election pushed the USD/JPY pair beyond the 154.00 mark on Wednesday and prompted verbal intervention by authorities.
- Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, reiterated that the government intended to closely watch moves in the FX market with a higher sense of urgency.
- Japan’s Vice Finance Minister for International Affairs and top FX official Atsushi Mimura said that the government is ready to take appropriate actions against excessive FX moves.
- Japan’s Finance Minister Katsunobu Kato on Friday that the government will closely monitor the impact of the President-elect Donald Trump’s policies on the domestic economy.
- Quarterly data from the Ministry of Finance (MOF) showed this Friday that Japan spent ¥5.53 trillion on currency intervention made during the period from June 27 through July 29.
- The US Dollar attracts some dip-buying on Friday to reverse a part of Thursday’s pullback from a four-month top and offer some support to the USD/JPY pair.
- The Federal Reserve lowered borrowing costs by 25 basis points on Thursday, following a jumbo rate cut in September that kicked off the policy easing cycle.
- In the post-meeting press conference, Fed Chair Jerome Powell failed to offer any cues that the central bank was likely to pause rate cuts in the near term.
- According to the CME Group’s FedWatch Tool, market participants are now pricing in 75% odds the US central bank will cut interest rates again in December.
- Furthermore, traders continue to unwind some of the profitable Trump trades, which might cap any meaningful upside for the USD and the currency pair.
Technical Outlook: USD/JPY is likely to attract some dip-buying ahead of the 152.00 mark
From a technical perspective, the overnight downfall stalled near the 152.70-152.65 horizontal support. The said area might now act as a pivotal point, below which the USD/JPY pair could accelerate the corrective decline towards the 152.00 mark en route to the 100-day Simple Moving Average (SMA), around the 151.70-151.65 region. Some follow-through selling will suggest that the recent strong move up from the September monthly swing low has run out of steam and paves the way for deeper losses.
On the flip side, the 153.50 area could act as an immediate hurdle ahead of the 153.85-153.90 supply zone. A subsequent move back above the 154.00 mark has the potential to lift the USD/JPY pair back towards the multi-month peak, around the 154.70 region touched on Thursday. The momentum could extend further toward the 155.00 psychological mark and the 155.20 zone (July 30 swing high).
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
